Portugal braced itself for the worst as Europe's debt hurricane swung south from Ireland, bringing with it a storm of spending cuts and a bruising showdown between government and unions.

The socialist government is busy pushing through an austerity budget this week that will slash civil service pay and which has resulted in trade unions planning a general strike on Wednesday.

The Irish bailout deal failed to relieve pressure on Portugal's debt. There were gloomy predictions that Portugal, too, would be forced to ask for help as the bond markets switched their focus back to Europe's southern fringe.

"Before this crisis I thought Portugal would go before Ireland. I think it will inevitably have to go," said Nick Firoozye of Nomura International, pointing to Portugal's need to raise money far more frequently than Ireland in order to cover sovereign debt. "Every time there is pressure it feeds through into the debt-servicing costs. So Portugal is more at risk."

"It's probably a question of when the next problem will occur rather than whether there will be one," said Jim Reid, a credit analyst at Deutsche Bank.

After Greece and Ireland, the pressure on Portugal and Spain has increased. The premium (over the rock-solid German bonds) that investors demand to buy Spanish bonds rose to 2.1 percentage points, above the 2.02 percentage points paid on Friday. The cost of protecting €10m of Spanish government bonds against default rose to €265,000, up from €259,000, and to €434,000 from €421,000 for Portuguese bonds.

"Europe is sinking – inevitably we are at the beginning of a sequential period. The cost of borrowing for the weakest links will start going up, uncertainty will remain," said Pau Morilla-Giner, a portfolio manager at London & Capital.

Echoing Ireland's Brian Cowen, Portugal's socialist prime minister, José Sócrates, claimed that his country did not need any help, and finance minister Fernando Teixeira dos Santos insisted the budget would slash the deficit, already predicted to fall two points this year to 7.3%, and then to 4.6% in 2011. But critics said the government's track record was not promising: the core state sector deficit rose 2% in the first nine months of the year.

"I think it means Portugal is next," agreed Filipe Garcia of Portugal's Informação de Mercados Financeiros. "I don't know if it will happen before the end of the year or after, but it's almost inevitable now."

A possible spread to Spain, the eurozone's fourth largest economy, would shake the euro's foundations in a way that problems in the relatively small economies of Greece, Ireland and Portugal have not. While Spain has already taken measures to cut its deficit and has a relatively low overall debt, it is dogged by 20% unemployment and lacklustre growth prospects.

Despite claims by the finance minister, Elena Salgado, that Spain has "absolutely" no need for a bailout, the bond vigilantes fear there are still some skeletons in the closet. "We need transparency now: they need to come clean and say how much debt local and regional governments have," said a hedge fund manager, who did not want to be identified. "But they won't tell the truth, because if they do, they will lose their jobs by admitting their huge mistakes."

Spain's local and regional communities are highly indebted. Last week, Europe's central government denied Madrid permission to refinance some of its staggering €7bn debt and Spain was urged to start paying up equity instead. The regional government of Catalonia has had to offer a hefty 4.75% interest to sell bonds to its citizens as financial markets shut their doors to high-deficit borrowers.

Other investors say Spain and Portugal will get some months of credit from the markets as, so far, they are meeting their promises on cuts. But markets will be ruthless if the countries stop delivering, or if they fail to introduce reforms to make their economies more competitive. Greece's borrowing costs fell to 7.2% after the country's bailout was announced in May – but recently they have shot up again to 11% as the country struggles to grow.

Investors complain that they can't buy some European government bonds because they still don't know how a potential debt restructuring would affect them.

The Irish crisis was triggered two weeks ago after German leader Angela Merkel said bondholders should also bear some of the losses related to any potential sovereign default.

"It might be that the final decision with regard to a permanent debt crisis mechanism will be the next most important catalyst in determining the direction of bond yields," said Gary Jenkins, head of fixed income at Evolution Securities.